1. 1 D r a f t Life Cycle Assessment A product-oriented method for sustainability analysis UNEP LCA Training Kit Module j – Life cycle costing & eco-efficiency

2. Sustainability analysis Extending LCA –economic dimension –social dimension Life cycle costing Eco-efficiency Combining LCA and LCC –separate –divide –sum Contents D r a f t

3. Sustainability analysis (1) World Commission on Environment and Development –Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Brundtland, 1987) D r a f t

4. 4 4 Sustainability analysis (2) World Summit for Sustainable Development, Johannesburg, August 2002 –The Summit meets under the theme "People, Planet and Prosperity". Its focus is on the improvement of people's lives everywhere, through sustainable development. (Thabo Mbeki, President of the Republic of South Africa)

5. Sustainability analysis (3) The Triple Bottom Line of 21st Century Business –The three pillars of sustainability (SustainAbility, John Elkington, 1998) social justice environmental quality economic prosperity D r a f t

6. 6 6 Sustainability analysis (4) LCA according to ISO: –LCA is the “compilation and evaluation of the inputs, outputs and the potential environmental impacts of a product system throughout its life cycle” –“Economic and social aspects and impacts are, typically, outside the scope of the LCA. Other tools may be combined with LCA for more extensive assessments.” where are the economic and social aspects?

7. 7 7 D r a f t Extending LCA Extension to the economic dimension –life cycle costing (LCC) Extension to the social dimension –work environment –employment ISO 14040: –“LCA typically does not address the economic or social aspects of a product, but the life cycle approach and methodologies described in this International Standard can be applied to these other aspects.”

8. 8 8 D r a f t Life cycle costing (1) Life cycle cost are the cost induced by a product in its life cycle –directly and indirectly –by public and private actors –possibly including cost of external effects Life cycle costing (LCC) is a method to establish life cycle cost

9. 9 9 D r a f t Life cycle costing (2) History –US Army ‘cheapest purchase meeting specifications’ cheapest functioning best cost-function relation –RAND Corporation Planning, Programming, Budgeting System (PPBS) –Cost benefit analysis (CBA) not budget cost but social cost

10. 10 D r a f t Life cycle costing (3) Cost categories –which costs will be included? Cost bearers –whose cost will be included? Cost models –How are the effects quantified? Cost aggregation –How are the results aggregated?

11. 11 D r a f t Life cycle costing (4) Cost categories –economics budget costs, market costs, collective costs, alternative costs; social costs, … –life cycle stages R&D, primary production, manufacturing, use, disposal, … –activity types design, transport, sales, manufacturing, …

12. 12 D r a f t Life cycle costing (5) Cost bearerUpstreamDownstream ProducerAlmost allNone Supply chainAllNone OwnerAlmost all User (not owner)Almost all Life cycle (all involved)All Country’s societyAll Global societyAll

13. 13 D r a f t Life cycle costing (6) Cost models –steady state models –comparative static equilibrium models –static optimization models –quasi-dynamic models –dynamic optimization models –dynamic models –system dynamic models

14. 14 D r a f t Life cycle costing (7) MethodDiscountingCost and benefit separate Net present value+- Average yearly cost-- Steady-state cost-- Annuity+- Pay-back time-+ Benefit-cost ratio++ …

15. 15 D r a f t Life cycle costing (8) Discounting –No discounting –Market rate (but which one?) –Individual time preference (but whose?) –Social time preference (but how derived?)

16. 16 D r a f t Aligning LCA and LCC (1) Aligning environmental and economic dimension (2/3 of sustainability) Systematically link –economic/cost –environmental consequences Approach –Defining LCA compatible with LCC –Defining LCC compatible with LCA –Mix of ‘1’ and ‘2’ Combined LCA/LCC results help specify eco-efficiency or environmental cost-effectiveness of decisions –e.g. as ‘cost per unit of environmental improvement’

17. 17 D r a f t Aligning LCA and LCC (2) Model typeExample Comparative static equilibrium analysis LCA Optimization modelsLP/OR Quasi-dynamic analysisLCC/CBA Dynamic analysisMacro-economic models

18. 18 D r a f t Aligning LCA and LCC (3) For both the LCA and LCC model: –express inventory processes as flows per year –adapt FU accordingly Two directions for alignment: –make LCA quasi-dynamic –make LCC steady state

19. 19 D r a f t Aligning LCA and LCC (4) LCA as (quasi) dynamic model –functional unit may change per year –life cycle processes very spread out in time –impact Assessment partially very spread out in time Conclusion: Quasi-dynamic LCA possible but conceptually not (yet?) so consistent

20. 20 D r a f t Aligning LCA and LCC (5) LCC as a steady state model –all (net) cost specified on a yearly average basis –infinite time horizon Conclusion: this niche may well be filled to connect LCC to LCA

21. 21 D r a f t Aligning LCA and LCC (6) There is not “one LCC” (nor “one LCA”) Aligning requires explicit choices and adaptations The LCA functional unit is to be expressed on a per-year basis, allowing for alignment with cost per year Adapting LCA leads to time-related inconsistencies: –discounting may be conflicting with strong sustainability requirements Adapting LCC yields consistent but unusual LCC

22. 22 D r a f t Combining LCA and LCC (1) What to do with two results: –an environmental indicator (E), e.g., with LCA –an economic indicator (C), e.g., with LCC Three approaches: –keep separate (separate indicators) –divide (ratio) –add (common metric)

23. 23 D r a f t Combining LCA and LCC (2) Option 1: keeping E and C separate Calculating –an environmental indicator (E), e.g., with LCA –an economic indicator (C), e.g., with LCC Using two analyses, e.g. LCA and LCC Using one analysis, e.g.: LCA&LCC

24. Combining LCA and LCC (3) D r a f t

25. Combining LCA and LCC (4) costs environmental impact reference option B option A option C option D D r a f t

26. 26 D r a f t Combining LCA and LCC (5) Option 2: dividing E and C Calculating –an environmental indicator (E), e.g., with LCA –an economic indicator (C), e.g., with LCC Forming eco-efficiency ratio –E/C (environmental productivity or improvement cost) –C/E (environmental intensity or cost-effectiveness)

27. 27 D r a f t Combining LCA and LCC (6) product or production primaryenvironmental improvement primary economy divided by environment environmental productivityimprovement cost environment divided by economy environmental intensityenvironmental cost-effectiveness

28. 28 D r a f t Combining LCA and LCC (7) 01234 E/C or C/E AxAx CxCx BxBx DxDx

29. 29 D r a f t Combining LCA and LCC (8) Option 3: adding E and C Calculating –an environmental indicator (E), e.g., with LCA –an economic indicator (C), e.g., with LCC Forming sum –cE+C (monetarized environmental impacts) –E+eC (“ecologized economics”) –  E+  C (weighted sum)

30. Combining LCA and LCC (9) D r a f t

31. 31 D r a f t Combining LCA and LCC (10) 01234 E+C AxAx CxCx BxBx DxDx